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Microvision Reports Record First Quarter Revenue of $4.0 Million

Q1 revenue up 20% over prior quarter and 50% (Microvision only) over Q1 2004. Company targets sequential growth of 20 to 25% for Q2 driven by record product sales and strong contract revenue

BOTHELL, Wash.--(BUSINESS WIRE)--May 5, 2005-- Microvision, Inc. (Nasdaq:MVIS - News), a leader in light scanning technologies, today reported financial results for the first quarter 2005. Revenue for the three months ended March 31, 2005 was $4.0 million compared to $2.7 million (Microvision only) for the same period in 2004 (consolidated revenue for first quarter 2004 was $3.0 million, which included $316,000 of revenue attributable to Lumera). The company had previously indicated that it expected first quarter revenue of $4.2 million. First quarter revenue was impacted by moderately lower than expected product sales and approximately $100,000 related to a delay in a contract award.

The company indicated that it is targeting second quarter revenue to be $4.8 million to $5.0 million, a 20 to 25% increase over the first quarter and a record quarter for revenue. The company is targeting record product revenue in the second quarter and continued strong contract revenue.

Contract revenue was $3.4 million for first quarter 2005 compared to $2.0 million (Microvision only) for the same period last year. In the first quarter the company announced new contract bookings of more than $7.6 million including it largest development contract ever, a $6.6 million contract with Ethicon Endo Surgery, a subsidiary of Johnson & Johnson. Product revenue for first quarter 2005 was $600,000 compared to $675,000 last year. Product revenue in the first quarter 2005 was comprised of $208,000 from sales of the Nomad system and $392,000 from sales of the Flic bar code scanner.

As of March 31, 2005 backlog totaled $5.0 million of which $4.7 million was for development contracts and $302,000 was for the Nomad System and Flic scanner. Earlier today the company announced that it was awarded a $1.2 million contract by General Dynamics C4 Systems to supply 165 ND2500 Nomad systems for the U.S. Army's Mounted Warrior Soldier System.

The company reported a consolidated net loss available for common shareholders of $7.2 million or $0.33 per share for first quarter 2005 compared to $6.7 million or $0.31 per share in the same period in 2004. First quarter 2005 net loss includes inventory writeoffs of $443,000 or $.02 per share related to Nomad and the Flic scanner. The inventory write-offs are associated with product design improvements and cost reduction initiatives. The first quarter net loss also includes $622,000 or $.03 per share in noncash expenses relating to the company's $10 million preferred stock, $10 million convertible exchangeable notes and embedded derivative features. The net loss attributable to the Lumera investment was $944,000 or $.04 per share and $299,000 or $.01 per share for the first quarter of 2005 and 2004, respectively.

The company ended the quarter with $6.3 million in cash, cash equivalents and investment securities. Microvision's cash used for operations in first quarter 2005 was $5.0 million compared to $7.5 million for the same period last year. Cash used for operations in first quarter 2005 included a change in accounts receivable of $3.2 million.

Gross Margin

Contract margins were 46% in first quarter 2005 compared to 48% for the same period in 2004. Product margins were negative in first quarter 2005 primarily due to inventory writeoffs and the move to full absorption of manufacturing overhead for the Nomad system. As the company reported in March, prior to October 2004, the company classified production cost in excess of revenue on the Nomad system as research and development expense. The company expects product margins to improve from the combined effect of increased volume and cost reductions.

Operating Expense

Operating expenses were $6.6 million in first quarter 2005 compared to $9.9 million for the same period last year. Last year's operating expenses included $2.4 million related to Lumera. The change to full absorption of manufacturing overhead resulted in approximately an $800,000 reduction in operating expense in first quarter 2005.

"We had a record first quarter and are targeting a record second quarter and first half," said Microvision CEO Rick Rutkowski. "Our contract business is solidly on track. With the recent order for 165 Nomad ND2500 systems from General Dynamics, our existing product backlog and the current sales pipeline for both the Nomad System and Flic scanner, we expect to ramp product revenue to record levels in the second quarter. We also expect to book significant additional military and commercial development contracts during this quarter and next.

"We recently teamed with General Dynamics C4 Systems to pursue the Army's Mounted Warrior program, and have been awarded a $1.2 million contract to supply 165 Nomad ND 2500 Systems for use in Stryker vehicles. The Nomad systems are expected to be installed into an in-theater Stryker Brigade for operational feedback. We are also anticipating the award of an additional development contract to further enhance and refine this product toward the goal of formal qualification by the Army.

"We continue to develop great potential in the military market for use of the Nomad 2500, as well as the Nomad 2100 and related products, for both combat related applications and vehicle maintenance. We have several significant opportunities in the pipeline.

"Channel development for commercial sales of the Nomad 2100 Expert Technician system in automotive maintenance continues to be a primary focus in support of ramping product revenue. We are working toward finalizing a significant distribution agreement and one or more co-marketing agreements in the automotive service segment for the Nomad 2100 System.

"We are delighted to be among the 25 industry partners that Microsoft has identified to work with in its recently announced Peak Performance Initiative, an effort to encourage technological innovation in the four core areas in the automotive industry. The program will involve continued publication of case studies and other marketing activities that should help promote Nomad success stories to both automotive OEMs and major dealership groups.

"We are also making important inroads in factory automation and plant maintenance applications. The Nomad is currently in trial and evaluation phase with several of the world's leading manufacturing companies as a maintenance solution and as a process control and inventory management tool. Early feedback suggests that the Nomad System is delivering compelling results against target metrics.

"We are pursuing a number of new OEM and reseller channel opportunities for the Flic scanner. During the past quarter we announced a solution that connects the Flic Cordless scanner to a Blackberry device. Flic has established compatibility with a growing range of mobile data devices for field force applications including asset tracking and inventory management. We have made progress in developing channels for mobile solutions providers, retail office supplies, healthcare, and a variety of web-based ASP applications. We believe that these represent large market opportunities and we continue to believe that we will begin seeing accelerating growth in Flic revenue in the second half of this year.

"Our development of the Virtual Cockpit display has recently resulted in the delivery to the Army's Air Warrior program office, of a very high performance full-color helmet mounted display with a rack-mountable control unit.

"We continue to achieve milestones under development contracts sponsored by world leading companies in the medical, automotive, printing, and consumer electronics domain, and to make significant and measurable progress towards commercialization of several compelling OEM products to address large markets with exciting growth prospects.

"During the quarter we made highly successful deliveries of Head-Up Display prototypes to VW Audi and to a major Tier 1 sponsor of our development efforts, and we expect additional development contracts in support of Automotive HUD development through the balance of this year. We continue to make excellent progress on our development program contracted by Johnson and Johnson's Ethicon Endo Surgery division.

"Our ongoing work on display solutions for high-volume consumer electronics applications including digital cameras, portable media devices and electronic gaming systems, has led us to a new proprietary systems design that we believe will uniquely enable a very high quality cinema-like viewing experience in a compact, affordable package. We believe that this is potentially a major breakthrough and our announcement has already generated considerable interest from consumer electronics companies.

"We are excited to be teamed with General Dynamics and Microsoft to support new efforts, and are looking forward to reporting on new channel partners for both the Nomad 2100 and the Flic Personal Barcode scanner as well as ongoing developments in defense related activities. Our work with Ethicon, VW / Audi and other global leaders in the areas of automotive supply and manufacturing, consumer electronics, laser printing and gaming devices is resulting in steady progress toward new products that can result in exciting revenue opportunities to drive future growth."

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